Public Act 093-0873
 
HB5075 Enrolled LRB093 20967 SAS 46953 b

    AN ACT concerning insurance.
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 5. The Illinois Insurance Code is amended by
changing Section 229.4 and adding Section 229.4a as follows:
 
    (215 ILCS 5/229.4)  (from Ch. 73, par. 841.4)
    Sec. 229.4. Standard Non-forfeiture Law for Individual
Deferred Annuities.
    (1) No contract of annuity issued on or after the operative
date of this Section except as stated in subsection (11) shall
be delivered or issued for delivery in this State unless it
contains in substance the following provisions or
corresponding provisions which in the opinion of the Director
are at least as favorable to the contract holder upon cessation
of payment of considerations under the contract:
        (a) That upon cessation of payment of considerations
    under a contract, the company will grant a paid-up annuity
    benefit on a plan stipulated in the contract of such value
    as is specified in subsections (3), (4), (5), (6) and (8).
        (b) If a contract provides for a lump sum settlement at
    maturity, or at any other time, that upon surrender of the
    contract at or prior to the commencement of any annuity
    payments, the company will pay in lieu of any paid-up
    annuity benefit a cash surrender benefit of such amount as
    is specified in subsections (3), (4), (6) and (8). The
    company shall reserve the right to defer the payment of
    such cash surrender benefit for a period of 6 months after
    demand therefor with surrender of the contract.
        (c) A statement of the mortality table, if any, and
    interest rates used in calculating any minimum paid-up
    annuity, cash surrender or death benefits that are
    guaranteed under the contract, together with sufficient
    information to determine the amount of such benefits.
        (d) A statement that any paid-up annuity, cash
    surrender or death benefits that may be available under the
    contract are not less than the minimum benefits required by
    any statute of the state in which the contract is delivered
    and an explanation of the manner in which such benefits are
    altered by the existence of any additional amounts credited
    by the company to the contract, any indebtedness to the
    company on the contract or any prior withdrawals from or
    partial surrenders of the contract.
    Notwithstanding the requirements of this subsection, any
deferred annuity contract may provide that if no considerations
have been received under a contract for a period of 2 full
years and the portion of the paid-up annuity benefit at
maturity on the plan stipulated in the contract arising from
considerations paid prior to such period would be less than
$20.00 monthly, the company may at its option terminate such
contract by payment in cash of the present value of such
portion of the paid-up annuity benefit, calculated on the basis
of the mortality table, if any, and interest rate specified in
the contract for determining the paid-up annuity benefit, and
by such payment shall be relieved of any further obligation
under such contract.
    (2) The minimum values as specified in subsections (3),
(4), (5), (6) and (8) of any paid-up annuity, cash surrender or
death benefits available under an annuity contract shall be
based upon minimum nonforfeiture amounts as defined in this
subsection.
        (a) With respect to contracts providing for flexible
    considerations, the minimum nonforfeiture amount at any
    time at or prior to the commencement of any annuity
    payments shall be equal to an accumulation up to such time
    at a rate of interest of 3% per annum of percentages of the
    net considerations, as hereinafter defined, paid prior to
    such time, decreased by the sum of (i) any prior
    withdrawals from or partial surrenders of the contract
    accumulated at a rate of interest of 3% per annum and (ii)
    the amount of any indebtedness to the company on the
    contract, including interest due and accrued, and
    increased by any existing additional amounts credited by
    the company to the contract.
        The net considerations for a given contract year used
    to define the minimum nonforfeiture amount shall be an
    amount not less than zero and shall be equal to the
    corresponding gross considerations credited to the
    contract during that contract year less an annual contract
    charge of $30.00 and less a collection charge of $1.25 per
    consideration credited to the contract during that
    contract year. The percentages of net considerations shall
    be 65% of the net consideration for the first contract year
    and 87 1/2% of the net considerations for the second and
    later contract years. Notwithstanding the provisions of
    the preceding sentence, the percentage shall be 65% of the
    portion of the total net consideration for any renewal
    contract year which exceeds by not more than two times the
    sum of those portions of the net considerations in all
    prior contract years for which the percentage was 65%.
        (a-5) Notwithstanding the provisions of paragraph (a)
    of this subsection, the minimum nonforfeiture amount for
    any contract issued on or after July 1, 2002 and before
    July 1, 2005 shall be based on a rate of interest of 1.5%
    per annum.
        (b) With respect to contracts providing for fixed
    scheduled considerations, minimum nonforfeiture amounts
    shall be calculated on the assumption that considerations
    are paid annually in advance and shall be defined as for
    contracts with flexible considerations which are paid
    annually, with two exceptions:
            (i) The portion of the net consideration for the
        first contract year to be accumulated shall be the sum
        of 65% of the net consideration for the first contract
        year plus 22 1/2% of the excess of the net
        consideration for the first contract year over the
        lesser of the net considerations for the second and
        third contract years.
            (ii) The annual contract charge shall be the lesser
        of (A) $30.00 or (B) 10% of the gross annual
        consideration.
        (c) With respect to contracts providing for a single
    consideration, minimum nonforfeiture amounts shall be
    defined as for contracts with flexible considerations
    except that the percentage of net consideration used to
    determine the minimum nonforfeiture amount shall be equal
    to 90% and the net consideration shall be the gross
    consideration less a contract charge of $75.00.
    (3) Any paid-up annuity benefit available under a contract
shall be such that its present value on the date annuity
payments are to commence is at least equal to the minimum
nonforfeiture amount on that date. Such present value shall be
computed using the mortality table, if any, and the interest
rate specified in the contract for determining the minimum
paid-up annuity benefits guaranteed in the contract.
    (4) For contracts which provide cash surrender benefits,
such cash surrender benefits available prior to maturity shall
not be less than the present value as of the date of surrender
of that portion of the maturity value of the paid-up annuity
benefit which would be provided under the contract at maturity
arising from considerations paid prior to the time of cash
surrender reduced by the amount appropriate to reflect any
prior withdrawals from or partial surrenders of the contract,
such present value being calculated on the basis of an interest
rate not more than 1% higher than the interest rate specified
in the contract for accumulating the net considerations to
determine such maturity value, decreased by the amount of any
indebtedness to the company on the contract, including interest
due and accrued, and increased by any existing additional
amounts credited by the company to the contract. In no event
shall any cash surrender benefit be less than the minimum
nonforfeiture amount at that time. The death benefit under such
contracts shall be at least equal to the cash surrender
benefit.
    (5) For contracts which do not provide cash surrender
benefits, the present value of any paid-up annuity benefit
available as a nonforfeiture option at any time prior to
maturity shall not be less than the present value of that
portion of the maturity value of the paid-up benefit provided
under the contract arising from considerations paid prior to
the time of the contract is surrendered in exchange for, or
changed to, a deferred paid-up annuity, such present value
being calculated for the period prior to the maturity date on
the basis of the interest rate specified in the contract for
accumulating the net considerations to determine such maturity
value, and increased by any existing additional amounts
credited by the company to the contract. For contracts which do
not provide any death benefits prior to the commencement of any
annuity payments, such present values shall be calculated on
the basis of such interest rate and the mortality table
specified in the contract for determining the maturity value of
the paid-up annuity benefit. However, in no event shall the
present value of a paid-up annuity benefit be less than the
minimum nonforfeiture amount at that time.
    (6) For the purpose of determining the benefits calculated
under subsections (4) and (5), in the case of annuity contracts
under which an election may be made to have annuity payments
commence at optional maturity dates, the maturity date shall be
deemed to be the latest date for which election shall be
permitted by the contract, but shall not be deemed to be later
than the anniversary of the contract next following the
annuitant's seventieth birthday or the tenth anniversary of the
contract, whichever is later.
    (7) Any contract which does not provide cash surrender
benefits or does not provide death benefits at least equal to
the minimum nonforfeiture amount prior to the commencement of
any annuity payments shall include a statement in a prominent
place in the contract that such benefits are not provided.
    (8) Any paid-up annuity, cash surrender or death benefits
available at any time, other than on the contract anniversary
under any contract with fixed scheduled considerations, shall
be calculated with allowance for the lapse of time and the
payment of any scheduled considerations beyond the beginning of
the contract year in which cessation of payment of
considerations under the contract occurs.
    (9) For any contract which provides, within the same
contract by rider or supplemental contract provision, both
annuity benefits and life insurance benefits that are in excess
of the greater of cash surrender benefits or a return of the
gross considerations with interest, the minimum nonforfeiture
benefits shall be equal to the sum of the minimum nonforfeiture
benefits for the annuity portion and the minimum nonforfeiture
benefits, if any, for the life insurance portion computed as if
each portion were a separate contract. Notwithstanding the
provisions of subsections (3), (4), (5), (6) and (8),
additional benefits payable (a) in the event of total and
permanent disability, (b) as reversionary annuity or deferred
reversionary annuity benefits, or (c) as other policy benefits
additional to life insurance, endowment, and annuity benefits,
and considerations for all such additional benefits, shall be
disregarded in ascertaining the minimum nonforfeiture amounts,
paid-up annuity, cash surrender and death benefits that may be
required by this section. The inclusion of such additional
benefits shall not be required in any paid-up benefits, unless
such additional benefits separately would require minimum
nonforfeiture amounts, paid-up annuity, cash surrender and
death benefits.
    (10) After the effective date of this Section, any company
may file with the Director a written notice of its election to
comply with the provisions of this Section after a specified
date before the second anniversary of the effective date of
this Section. After the filing of such notice, then upon such
specified date, which shall be the operative date of this
section for such company, this Section shall become operative
with respect to annuity contracts thereafter issued by such
company. If a company makes no such election, the operative
date of this section for such company shall be the second
anniversary of the effective date of this Section.
    (11) This Section shall not apply to any reinsurance, group
annuity purchased under a retirement plan or plan of deferred
compensation established or maintained by an employer
(including a partnership or sole proprietorship) or by an
employee organization, or by both, other than a plan providing
individual retirement accounts or individual retirement
annuities under Section 408 of the Internal Revenue Code, as
now or hereafter amended, premium deposit fund, variable
annuity, investment annuity, immediate annuity, any deferred
annuity contract after annuity payments have commenced, or
reversionary annuity, nor to any contract which shall be
delivered outside this State through an agent or other
representative of the company issuing the contract.
    (12) This Section is repealed on July 1, 2006.
(Source: P.A. 92-541, eff. 7-1-02.)
 
    (215 ILCS 5/229.4a new)
    Sec. 229.4a. Standard Non-forfeiture Law for Individual
Deferred Annuities.
    (1) Title. This Section shall be known as the Standard
Nonforfeiture Law for Individual Deferred Annuities.
    (2) Applicability. This Section shall not apply to any
reinsurance, group annuity purchased under a retirement plan or
plan of deferred compensation established or maintained by an
employer (including a partnership or sole proprietorship) or by
an employee organization, or by both, other than a plan
providing individual retirement accounts or individual
retirement annuities under Section 408 of the Internal Revenue
Code, as now or hereafter amended, premium deposit fund,
variable annuity, investment annuity, immediate annuity, any
deferred annuity contract after annuity payments have
commenced, or reversionary annuity, nor to any contract which
shall be delivered outside this State through an agent or other
representative of the company issuing the contract.
    (3) Nonforfeiture Requirements.
        (A) In the case of contracts issued on or after the
    operative date of this Section as defined in subsection
    (13), no contract of annuity, except as stated in
    subsection (2), shall be delivered or issued for delivery
    in this State unless it contains in substance the following
    provisions, or corresponding provisions which in the
    opinion of the Director of Insurance are at least as
    favorable to the contract holder, upon cessation of payment
    of considerations under the contract:
            (i) That upon cessation of payment of
        considerations under a contract, or upon the written
        request of the contract owner, the company shall grant
        a paid-up annuity benefit on a plan stipulated in the
        contract of such value as is specified in subsections
        (5), (6), (7), (8) and (10);
            (ii) If a contract provides for a lump sum
        settlement at maturity, or at any other time, that upon
        surrender of the contract at or prior to the
        commencement of any annuity payments, the company
        shall pay in lieu of a paid-up annuity benefit a cash
        surrender benefit of such amount as is specified in
        subsections (5), (6), (8) and (10). The company may
        reserve the right to defer the payment of the cash
        surrender benefit for a period not to exceed 6 months
        after demand therefor with surrender of the contract
        after making written request and receiving written
        approval of the Director. The request shall address the
        necessity and equitability to all policyholders of the
        deferral;
            (iii) A statement of the mortality table, if any,
        and interest rates used calculating any minimum
        paid-up annuity, cash surrender, or death benefits
        that are guaranteed under the contract, together with
        sufficient information to determine the amounts of the
        benefits; and
            (iv) A statement that any paid-up annuity, cash
        surrender or death benefits that may be available under
        the contract are not less than the minimum benefits
        required by any statute of the state in which the
        contract is delivered and an explanation of the manner
        in which the benefits are altered by the existence of
        any additional amounts credited by the company to the
        contract, any indebtedness to the company on the
        contract or any prior withdrawals from or partial
        surrenders of the contract.
        (B) Notwithstanding the requirements of this Section,
    a deferred annuity contract may provide that if no
    considerations have been received under a contract for a
    period of 2 full years and the portion of the paid-up
    annuity benefit at maturity on the plan stipulated in the
    contract arising from prior considerations paid would be
    less than $20 monthly, the company may at its option
    terminate the contract by payment in cash of the then
    present value of the portion of the paid-up annuity
    benefit, calculated on the basis on the mortality table, if
    any, and interest rate specified in the contract for
    determining the paid-up annuity benefit, and by this
    payment shall be relieved of any further obligation under
    the contract.
    (4) Minimum values. The minimum values as specified in
subsections (5), (6), (7), (8) and (10) of any paid-up annuity,
cash surrender or death benefits available under an annuity
contract shall be based upon minimum nonforfeiture amounts as
defined in this subsection.
        (A)(i) The minimum nonforfeiture amount at any time at
    or prior to the commencement of any annuity payments shall
    be equal to an accumulation up to such time at rates of
    interest as indicated in subdivision (4)(B) of the net
    considerations (as hereinafter defined) paid prior to such
    time, decreased by the sum of paragraphs (a) through (d)
    below:
                (a) Any prior withdrawals from or partial
        surrenders of the contract accumulated at rates of
        interest as indicated in subdivision (4)(B);
                (b) An annual contract charge of $50,
        accumulated at rates of interest as indicated in
        subdivision (4)(B);
                (c) Any premium tax paid by the company for the
        contract, accumulated at rates of interest as
        indicated in subdivision (4)(B); and
                (d) The amount of any indebtedness to the
        company on the contract, including interest due and
        accrued.
        (ii) The net considerations for a given contract year
    used to define the minimum nonforfeiture amount shall be an
    amount equal to 87.5% of the gross considerations, credited
    to the contract during that contract year.
        (B) The interest rate used in determining minimum
    nonforfeiture amounts shall be an annual rate of interest
    determined as the lesser of 3% per annum and the following,
    which shall be specified in the contract if the interest
    rate will be reset:
            (i) The five-year Constant Maturity Treasury Rate
        reported by the Federal Reserve as of a date, or
        average over a period, rounded to the nearest 1/20th of
        one percent, specified in the contract no longer than
        15 months prior to the contract issue date or
        redetermination date under subdivision (4)(B)(iv);
            (ii) Reduced by 125 basis points;
            (iii) Where the resulting interest rate is not less
        than l%; and
            (iv) The interest rate shall apply for an initial
        period and may be redetermined for additional periods.
        The redetermination date, basis and period, if any,
        shall be stated in the contract. The basis is the date
        or average over a specified period that produces the
        value of the 5-year Constant Maturity Treasury Rate to
        be used at each redetermination date.
        (C) During the period or term that a contract provides
    substantive participation in an equity indexed benefit, it
    may increase the reduction described in subdivision
    (4)(B)(ii) above by up to an additional 100 basis points to
    reflect the value of the equity index benefit. The present
    value at the contract issue date, and at each
    redetermination date thereafter, of the additional
    reduction shall not exceed market value of the benefit. The
    Director may require a demonstration that the present value
    of the additional reduction does not exceed the market
    value of the benefit. Lacking such a demonstration that is
    acceptable to the Director, the Director may disallow or
    limit the additional reduction.
        (D) The Director may adopt rules to implement the
    provisions of subdivision (4)(C) and to provide for further
    adjustments to the calculation of minimum nonforfeiture
    amounts for contracts that provide substantive
    participation in an equity index benefit and for other
    contracts that the Director determines adjustments are
    justified.
    (5) Computation of Present Value. Any paid-up annuity
benefit available under a contract shall be such that its
present value on the date annuity payments are to commence is
at least equal to the minimum nonforfeiture amount on that
date. Present value shall be computed using the mortality
table, if any, and the interest rates specified in the contract
for determining the minimum paid-up annuity benefits
guaranteed in the contract.
    (6) Calculation of Cash Surrender Value. For contracts that
provide cash surrender benefits, the cash surrender benefits
available prior to maturity shall not be less than the present
value as of the date of surrender of that portion of the
maturity value of the paid-up annuity benefit that would be
provided under the contract at maturity arising from
considerations paid prior to the time of cash surrender reduced
by the amount appropriate to reflect any prior withdrawals from
or partial surrenders of the contract, such present value being
calculated on the basis of an interest rate not more than 1%
higher than the interest rate specified in the contract for
accumulating the net considerations to determine maturity
value, decreased by the amount of any indebtedness to the
company on the contract, including interest due and accrued,
and increased by any existing additional amounts credited by
the company to the contract. In no event shall any cash
surrender benefit be less than the minimum nonforfeiture amount
at that time. The death benefit under such contracts shall be
at least equal to the cash surrender benefit.
    (7) Calculation of Paid-up Annuity Benefits. For contracts
that do not provide cash surrender benefits, the present value
of any paid-up annuity benefit available as a nonforfeiture
option at any time prior to maturity shall not be less than the
present value of that portion of the maturity value of the
paid-up annuity benefit provided under the contract arising
from considerations paid prior to the time the contract is
surrendered in exchange for, or changed to, a deferred paid-up
annuity, such present value being calculated for the period
prior to the maturity date on the basis of the interest rate
specified in the contract for accumulating the net
considerations to determine maturity value, and increased by
any additional amounts credited by the company to the contract.
For contracts that do not provide any death benefits prior to
the commencement of any annuity payments, present values shall
be calculated on the basis of such interest rate and the
mortality table specified in the contract for determining the
maturity value of the paid-up annuity benefit. However, in no
event shall the present value of a paid-up annuity benefit be
less than the minimum nonforfeiture amount at that time.
    (8) Maturity Date. For the purpose of determining the
benefits calculated under subsections (6) and (7), in the case
of annuity contracts under which an election may be made to
have annuity payments commence at optional maturity dates, the
maturity date shall be deemed to be the latest date for which
election shall be permitted by the contract, but shall not be
deemed to be later than the anniversary of the contract next
following the annuitant's seventieth birthday or the tenth
anniversary of the contract, whichever is later.
    (9) Disclosure of Limited Death Benefits. A contract that
does not provide cash surrender benefits or does not provide
death benefits at least equal to the minimum nonforfeiture
amount prior to the commencement of any annuity payments shall
include a statement in a prominent place in the contract that
such benefits are not provided.
    (10) Inclusion of Lapse of Time Considerations. Any paid-up
annuity, cash surrender or death benefits available at any
time, other than on the contract anniversary under any contract
with fixed scheduled considerations, shall be calculated with
allowance for the lapse of time and the payment of any
scheduled considerations beyond the beginning of the contract
year in which cessation of payment of considerations under the
contract occurs.
    (11) Proration of Values; Additional Benefits. For a
contract which provides, within the same contract by rider or
supplemental contract provision, both annuity benefits and
life insurance benefits that are in excess of the greater of
cash surrender benefits or a return of the gross considerations
with interest, the minimum nonforfeiture benefits shall be
equal to the sum of the minimum nonforfeiture benefits for the
annuity portion and the minimum nonforfeiture benefits, if any,
for the life insurance portion computed as if each portion were
a separate contract. Notwithstanding the provisions of
subsections (5), (6), (7), (8) and (10), additional benefits
payable in the event of total and permanent disability, as
reversionary annuity or deferred reversionary annuity
benefits, or as other policy benefits additional to life
insurance, endowment and annuity benefits, and considerations
for all such additional benefits, shall be disregarded in
ascertaining the minimum nonforfeiture amounts, paid-up
annuity, cash surrender and death benefits that may be required
under this Section. The inclusion of such benefits shall not be
required in any paid-up benefits, unless the additional
benefits separately would require minimum nonforfeiture
amounts, paid-up annuity, cash surrender and death benefits.
    (12) Rules. The Director may adopt rules to implement the
provisions of this Section.
    (13) Effective Date. After the effective date of this
amendatory Act of the 93rd General Assembly, a company may
elect to apply its provisions to annuity contracts on a
contract form-by-contract form basis before July 1, 2006. In
all other instances, this Section shall become operative with
respect to annuity contracts issued by the company on or after
July 1, 2006.
    (14) This Section is repealed on July 1, 2007.
 
    Section 99. Effective date. This Act takes effect on July
1, 2004.